PM End of Week Market Commentary - 4/17/2015

davefairtex
By davefairtex on Sat, Apr 18, 2015 - 10:56am

On Friday, gold rose +5.90 to 1203.80 on moderate volume, while silver fell -0.02 to 16.25 moderate volume too.  Gold traded in a relatively narrow range, but by end of day it did manage to squeak back above its 50 MA.  Silver did not do as well.

On the week, gold ended down -4.30 [-0.36%], silver fell -0.24 [-1.46%], GDX rose +1.39% and GDXJ climbed +1.15%.

While the daily chart looks a bit more confused as to direction, the weekly chart gives us a better picture: this week we see a red hammer candle after a four week rally.  This suggests that there was a sell-off this week that was bought, and that prices are likely preparing to move higher off that correction.  A close above last week's high would confirm this.  1306 is still the target for gold to end its 4 year downtrend.

Over that same period, you can see that silver had only two weeks of rally, followed by three weeks of correction.  The pattern just looks more bearish to me.  Its possible that silver could rally, but to me it looks less likely than for gold.  This is also evident when you look at the gold/silver ratio, which has been climbing for four straight weeks.  Just this week it rose +0.82 to 74.10 - distinctly bearish territory.

The USD

The buck had a bad week, topping out on Monday, followed by three large down days.  The dollar ended the week down -1.89 [-1.90%] to 97.71.  The large move down in the buck did not appear to help gold at all.

On the weekly chart, we can see that in the past six weeks, the buck has been trading sideways in a large range, testing 100 resistance and failing to close above it 4 different times.  The 9 EMA continues to act as support, but momentum is slowing and the MACD trend indicator has crossed over, suggesting a trend change in USD for the first time since July 2014.

TA is telling us that the dollar has a decent chance of correcting more seriously in the near future.  If it does, that should help PM and commodities.

Greek situation continues to fester.  I read an interesting article describing the thinking of the Greek electorate - with a six-point exposition that makes a great deal of sense - together with a prediction for a Grexit-type event on May 9th.   The article is making the rounds, appearing on ZH, TAE, as well as David Stockman's blog:

http://raasconsulting.blogspot.co.nz/2015/04/why-grexit-is-inevitable-soon.html

Why May 9th?  Its the weekend immediately prior to a (quite possibly unpayable) 744.9 million euro bill due to the IMF.  Never a dull moment.

Miners

Miners worked hard this week to overcome a weak gold performance, almost managing to break up and out of the ascending triangle pattern that has been forming over the past month or so.  A breakout higher frm this pattern would bullish for PM in general.

Junior miners are forming a similar pattern.

Both of these patterns are forming in the context of a four year downtrend in the miners.  While GDX has managed to climb back above its 9 EMA, that is only the first step in a longer process.  To put an end to this four-year downtrend, GDX needs a close above 27.50, which is still a long ways away.

In the chart below, its a mixed bag, but most miners remain in a long term downtrend.  Not all, however.  The big producer Newmont actually executed a golden cross back in March (50 MA crosses 200 MA), which is bullish.  Many silver miners are almost completely bearish.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Standard SSRI 2.49% -44.17% rising falling falling rising ma50 on 2015-04-15 2015-04-17
Aurico Gold AUQ 2.05% -13.18% rising falling falling falling ma50 on 2015-04-13 2015-04-17
Coeur Mining CDE 1.58% -32.08% rising falling falling falling ma200 on 2015-04-16 2015-04-17
New Gold NGD 1.43% -29.06% rising falling falling rising ema9 on 2015-04-17 2015-04-17
Anglogold Ashanti AU 1.15% -34.46% rising falling falling rising ma50 on 2015-04-14 2015-04-17
Silver Wheaton SLW 1.14% -10.03% rising falling falling falling ema9 on 2015-04-17 2015-04-17
Franco-Nevada FNV 0.94% 8.04% rising falling falling falling ema9 on 2015-04-17 2015-04-17
Barrick Gold ABX 0.87% -28.03% rising falling falling rising ma50 on 2015-04-06 2015-04-17
Yamana Gold AUY 0.75% -48.59% rising falling falling rising ma50 on 2015-04-15 2015-04-17
Agnico Eagle AEM 0.67% 7.42% rising falling falling falling ma50 on 2015-04-17 2015-04-17
Royal Gold RGLD 0.66% -2.43% falling falling falling falling ema9 on 2015-04-07 2015-04-17
Gold Fields GFI 0.00% 2.81% falling falling rising falling ema9 on 2015-04-16 2015-04-17
Kinross Gold KGC 0.00% -43.98% falling falling falling falling ema9 on 2015-04-08 2015-04-17
Goldcorp GG -0.20% -14.02% rising falling falling falling ema9 on 2015-04-10 2015-04-17
Newmont Mining NEM -0.21% 0.60% rising falling falling falling ma50 on 2015-04-17 2015-04-17
Newcrest Mining NCMGY -0.36% 17.05% rising falling rising falling ma50 on 2015-04-06 2015-04-17
Iamgold IAG -0.47% -38.66% rising falling falling falling ema9 on 2015-04-10 2015-04-17
First Majestic AG -0.78% -44.91% falling falling falling rising ema9 on 2015-04-16 2015-04-17
Randgold GOLD -0.96% -4.32% rising falling falling falling ma50 on 2015-04-15 2015-04-17
Pan American PAAS -1.59% -24.59% falling falling falling falling ema9 on 2015-04-17 2015-04-17
Eldorado Gold EGO -1.79% -14.71% rising falling falling rising ma50 on 2015-04-17 2015-04-17
Pretium Gold PVG -2.15% 7.85% rising falling falling falling ma50 on 2015-04-10 2015-04-17
Hecla Mining HL -2.47% 3.27% falling falling falling falling ema9 on 2015-04-17 2015-04-17
Fortuna Silver FSM -2.57% -9.79% falling falling falling falling ema9 on 2015-04-08 2015-04-17

US Equities/SPX

This week SPX was plodding higher right up until Friday, where a worldwide equity market selloff ended up dragging SPX down on the week -20.88 to 2081.37.  The selloff was triggered apparently by the Chinese government making margin cash harder to come by, and shorting easier to do.  Chinese stock market promptly dropped 5%.  For its part, SPX drove through both 9 EMA and 50 MA.  Will this lead to something more?  Its hard to say.  We still need a close below 2040 for any of this to mean anything more than just movement within a trading range.  VIX was up on the week, +1.31 to 13.89.

We don't have a very full calendar next week:

  • Existing Home Sales: 10am Wednesday
  • New Home Sales: 10am Thursday
  • Durable Goods Orders: 830am Friday

Manufacturing continues to show weakness likely due to the strong dollar.

My NN still shows a possible impending SPX correction, anywhere from 5-15% within the next few months.   Likelihood has increased.

Gold in Other Currencies

This week gold fell hard - especially in Rubles, Brazilian Reals, and Euros.  Check out how gold has retraced a huge percentage of its Ruble gains from the massive move over the past four months.  Currency giveth, and then currency taketh away.

Gold corrected in most currencies.  The only reason gold did (relatively) well in dollars is because the dollar was down big on the week.

Rates & Commodities

Bonds (TLT) rose on the week, climbing +1.41%.  On the weekly chart, bonds remain supported by the 9 EMA, and further weakness in SPX should lead to a bond breakout to the upside.

Junk bonds (JNK) were mostly flat on the week, rising +0.03% but printing a doji - almost a gravestone doji.  On the daily chart, JNK marked a swing high, which suggests a correction in JNK may be coming.  If there is follow-through, it also may hint at an overall move to risk-off which would support a move lower for SPX.

The CRB (commodity index) had a fantastic week, closing up +3.14% and closing above its (weekly) 9 EMA for the first time in 10 months.  There is still a great deal of work to do for the commodity index to recover, but things are looking more positive than they have in quite some time.  We can't say "inflation is coming back" just yet, but we are getting hints that deflation symptoms are abating, at least to some degree.  A good chunk of this is driven by oil.

WTIC also had a great week, rising +4.28 [+8.26%] to 56.07, confirming the double bottom in oil and generally looking quite strong.

Rig counts dropped again this week - total US land rigs are down -34 rigs to 917, or -3.58%.  The North Dakota DMR Director's Cut indicated a production drop in the Bakken for February of 14k bbl/day, on top of the production drop in January of 36k bbl/day.  900 wells have been drilled in Bakken and are awaiting completion.  Likely they will remain so until the price rises to levels where production is at least somewhat profitable.

After the strong rally in oil over the past 5 weeks, my NN is suggesting we've hit an interim high point for WTIC - it is predicting a reversal back lower.  It will be interesting to see if this ends up coming true.  This particular version has been a bit early with crude in the past, having predicted the bottom early for 4 straight weeks prior to the actual low being hit.  Perhaps by now it has learned from its mistakes.

Physical Supply Indicators

* Shanghai premiums rose slightly, up +0.10 to +1.88 over COMEX.

* The GLD ETF gained +4.77 tons, with 739.06 tons remaining.

* GC futures remain in backwardation; the spread on the first two month contracts is -0.20.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on April 17th) of 1204.10 and silver 16.22:

 PHYS 9.95 -0.31% to NAV [up]
 PSLV 6.32 +0.79% to NAV [down]
 CEF 11.92 -8.17% to NAV [down]
 GTU 40.97 -7.81% to NAV [up]

ETF premiums were mixed.

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no signficant premiums in any one of its five (London, Toronto, Zurich, New York, Singapore) locations.

Futures Positioning

The COT report covered trading through April 14th, when gold closed at 1210.60 and silver 16.82.  During the coverage period, gold had two big spikes higher - last Wednesday, and this past Monday.

Managed Money added +5.3k short positions, a small increase, and dropped some longs.  Current positioning indicates no trend change imminent - and would be supportive of a continued move higher.  The relatively low Commercial short position agrees.

In silver, Managed Money added 5.7k shorts and dropped -3k long contracts.   Long liquidation in silver continues, and does not yet look like it has finished.  This suggest no trend change yet for silver, which probably means silver has more room to drop, at least relative to gold anyway.

Moving Average Trends [9 EMA, 50 MA, 200 MA]

You can really see the divergence between silver (and the silver miners) vs gold and the gold miners.  Gold is engaged in a short and early-medium term recovery, while silver is still languishing in bear territory.  Everything remains bearish in the longer term - the four year downtrend remains firmly in place.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold COMEX.Gold 0.84% -5.59% rising falling falling falling ema9 on 2015-04-30 2015-04-30
Platinum COMEX.Platinum 0.72% -18.30% rising falling falling rising ma50 on 2015-04-17 2015-04-17
Silver COMEX.Silver 0.04% -17.06% falling falling falling rising ema9 on 2015-04-08 2015-04-16
Senior Miners GDX -0.10% -15.80% rising falling falling falling ma50 on 2015-04-17 2015-04-17
Junior Miners GDXJ -0.49% -28.43% rising falling falling rising ma50 on 2015-04-17 2015-04-17
Silver Miners SIL -1.13% -29.22% falling falling falling falling ema9 on 2015-04-17 2015-04-17

Summary

Dollar dropped sharply this week, but that has yet to help gold, which underwent a correction in Euro terms on the week.  Still, gold in Euros still looks reasonably strong; if gold can find support in Europe and the dollar continues to fall, gold could potentially rally in USD through the previous high around 1223 which would probably cause a flurry of short covering.  The silver chart does not look quite so promising.

The gold/silver ratio rose again, up +0.82 to 74.10: the ratio is bearish, and getting more so each week. GDX:$GOLD moved higher and is approaching medium-term bullish (on the daily chart), while GDXJ:GDX is still tracking sideways - at best, short term neutral, long term bearish.  Momentum overall is still down.

The COT report shows bullish potential for gold (Commercial short positions remain low, as do Managed Money longs), while things do not look nearly so positive for silver.

Physical demand is slightly positive; in the west, ETF premiums changes were mixed, the slight backwardation in COMEX gold is positive, while premiums in Shanghai are mostly unchanged and slightly positive.

Commodities recovered strongly this week, as did oil which has risen for five straight weeks now.   It is possible the oil comeback may be getting a bit tired: oil has had a 35% move off the 42 low over the past 5 weeks.  At some point shale drillers will want to lock in prices; if shale truly is profitable at WTIC 57, I would expect to see some selling pressure start to appear from renewed producer hedging next week.

To me gold still looks like it could break higher; with some support in Europe and a falling dollar, we could still see gold jump substantially in the next few weeks.  I'm less optimistic about silver, just based on how it has been acting over the past few weeks.  A falling SPX would probably help gold too.

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